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When negotiating a commercial lease, there are many new documents and legal terms to keep track of. This can be difficult to understand at times, especially if you are trying to find commercial premises for your business for the first time. One such crucial legal document is the deed of lease, which is the contract that outlines the terms of your lease. This article will explain:

  • what a deed of lease is;
  • why you need one; and
  • some terms that it should cover.

What Is a Deed of Lease?

A deed of lease is the final document that sets out your lease terms, that both you and your landlord need to sign. Any personal guarantors should sign also.

You do not have to sign this document, but you should before you begin your possession of the property, to tie up any loose ends and secure your position. 

Make sure to read through the document thoroughly, and that you agree to the provisions within it. It should be the finalised copy of your negotiations with your landlord and sum up the nature of the lease relationship, as well as details of its day to day functioning.

What Is an Agreement to Lease?

A deed of lease may be the final version of an agreement to lease, which is a similar document. The difference is that an agreement to lease may have conditions you need to fulfil before you can move in, whereas the deed of lease is final.

For example, an agreement to lease may be conditional because the landlord needs to finish renovations on the property before you can take possession. You would sign a deed of lease when those renovations finished, and there were no more conditions to complete.

Why Do I Need a Deed of Lease?

Some commercial lease agreements may only rely on an agreement to lease, rather than continuing with the formal deed of lease. While this may be convenient, your legal position is far more secure if you sign and finalise a deed of lease. This is because:

  • the agreement to lease only sets out broad commercial terms, rather than going into more detail about the lease’s day to day functioning;
  • if you want to sell your business and the landlord agrees, you will need one to do so;
  • you need one if you wish to assign the lease or sublet;
  • banks will often require one if you want to borrow money;
  • an agreement to lease will have conditions that have certain completion dates, that may delay the actual start date of the lease. A deed of lease will have a confirmed commencement date and exit date, thus avoiding any confusion;
  • it provides certainty and security for both you and the landlord; and
  • if there is a dispute between you and your landlord, the deed of lease should contain a clause that provides a dispute resolution method, such as mediation or arbitration.

What Should My Deed of Lease Cover?

Every commercial lease is different, so the contents will vary. Lawyers and real estate agents commonly use the Auckland District Law Society (ADLS) deed of lease form for commercial lease documentation. You may modify this form or use a different one, but it typically covers these clauses (table):

Identification of Both Parties

Clearly outlines who the landlord and tenant are. Especially important if a company or trust is involved.

Description of Premises

Describes the boundaries and interior of the property, as well as any attached car parks, fixtures, or fittings.

Premise Condition Report

Will detail the condition of the premises at the start of the lease, with photos and tickboxes detailing whether it is in good or average condition.

Term of the Lease

How long the lease is for, and if it splits into blocks with an option to renew.

Rent Reviews

Outlines how the landlord will calculate rent reviews, through market rent or the CPI index.

Legal Costs

The current ADLS requires that each party pays their own legal costs, but some landlords may require you to pay theirs, so check the deed to make sure.

Maintenance Responsibilities

Supplies a summary of both your obligations and the landlord’s obligations regarding repairs and maintenance.

Reinstatement

Also known as a ‘make good clause’, this would outline whether you need to reinstate the property to its original state when your lease ends.

Lease Assignment

Explains whether you can assign the lease (or sublet it). Some landlords may forbid this, so check and make sure.

Outgoings

The expenses you may pay on top of rent, such as utility costs or contributions to council fees.

Insurance

The kind of insurance the landlord has on the property and whether you need to make any contributions.

Key Takeaways

The deed of lease is the final document that sums up the negotiations between you and your commercial landlord. Make sure to thoroughly read through this final document and follow up on any points that are a cause for concern. If you would like more information or help with your deed of lease, contact LegalVision’s New Zealand property and leasing lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

What is a Deed of Lease?

It is a formal document that outlines the terms of your commercial lease. It is the end result of negotiations with your landlord and details the lease’s day-to-day functioning.

What is an Agreement to Lease?

An agreement to lease is a preliminary document that you can draft up before finalising your deed of lease. You would use an agreement to lease if things needed to happen before you moved in, such as renovations or you needed to conduct a due diligence process.

Do I need a Deed of Lease?

You may not necessarily need one, but it is a good idea to have a deed of lease. If you want to take out a bank loan, they will likely require one. If you want to sell your business and assign the lease, you can only do this if you have a deed of lease document.

Is an Agreement to Lease as good as a Deed of Lease?

Generally, it is a good idea to finalise your lease with a deed of lease, instead of relying on your agreement to lease. This is because it is more specific, containing the terms of the lease in greater detail. It also does not rely on completing any conditions or processes before you can finalise the agreement.

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